Robert Menendez

US Senator for New Jersey
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Menendez Calls for End to Subsidies for Big Oil

Calls Senate Vote on Monday the Big Test: On Whose Side Will You Stand?

March 23, 2012

Washington On Monday, March 26 at 5:30 pm, the U.S. Senate will vote on Senator Menendez’s Repeal Big Oil Tax Subsidies Act, which would repeal tax loopholes to the five largest, most profitable oil companies in the world: BP, Exxon, Shell, Chevron, and ConocoPhillips (“Big 5”) and use those savings to extend for one year expiring energy tax provisions and reduce the deficit.

 “Let me be very clear:  Monday’s vote to Repeal Big Oil Tax Subsidies is the Big Test and Americans will decide who passes and who fails,” said Menendez.  “It’s time to stand up for real families and stand up to Big Oil.”

 Over the last decade, the Big 5 have enjoyed nearly $1 trillion in profits and tens of billions of dollars in taxpayer subsidies.  Last year alone the Big 5 amassed $137 billion in profits on the backs of American drivers. 

 “People I talk to in New Jersey want to know why they’re stuck paying close to $4.00 for a gallon of gasoline while these companies rake in billions of dollars in subsidies and record profits,” Menendez said.  “And they want to know why these oil companies should continue to enjoy billions of dollars in subsidies when we could be using that savings to invest in alternatives to oil and lower the deficit.”

 By incorporating the tax-extending provisions of the Stabenow Amendment to the Surface Transportation bill, the Repeal Big Oil Tax Subsidies Act will help continue important incentives for alternatives to oil.  It extends tax credits for biodiesel, cellulosic ethanol, and alternative fuels such as natural gas and propane.  It also extends important tax credits for wind, efficiency, and some fossil fuel incentives as well.

 The rest of the savings will be dedicated to deficit reduction.  The Joint Committee on Taxation (JCT) estimates that the cost of extending the energy tax incentives in title I at $11.7 billion over ten years.  JCT estimates the revenue saved from repealing the oil and gas subsidies in Title II at $24 billion over ten years. 

Summary of the bill:

 

TITLE I—TAX EXTENSIONS RELATING TO ENERGY

Section 101.  Extension of Credit for Energy-Efficient Existing Homes.

The proposal extends through 2012 the credit under Section 25C of the Code for energy-efficient improvements to existing homes, reinstating the credit as it existed before passage of the American Recovery and Reinvestment Act.  Standards for property eligible under 25C are updated to reflect improvements in energy efficiency. 

 Section 102.  Extension of Credit for Certain Plug-In Electric Vehicles.

The proposal extends the plug-in electric drive credit for motorcycles, three-wheel vehicles and low-speed vehicles through 2012. The credit is equal to 10% of the purchase price of the vehicle capped at $2,500 per vehicle. 

 Section 103.  Extension of Credit for Alternative Fuel Vehicle Refueling Property.

The proposal extends through 2012 the 30% investment tax credit for alternative vehicle refueling property. 

 Section 104.  Extension of Cellulosic Biofuel Producer Credit.

The cellulosic biofuel producer credit is a nonrefundable income tax credit for each gallon of qualified cellulosic fuel production of the producer for the taxable year. The amount of the credit per gallon is $1.01. 

 Section 105.  Algae Treated as a Qualified Feedstock for Purposes of the Cellulosic Biofuel Producer Credit, Etc.

Clarifies that algae-derived biofuel is eligible for the cellulosic biofuel producer credit and that it is a qualified feedstock for purposes of the special allowance for biofuel plant property.

 Section 106.  Extension of Incentives for Biodiesel and Renewable Diesel.

The proposal extends for one year, through 2012, the $1.00 per gallon tax credit for biodiesel, as well as the small agri-biodiesel producer credit of 10 cents per gallon.  The proposal also extends through 2012 the $1.00 per gallon tax credit for diesel fuel created from biomass. 

 Section 107.  Extension of Production Credit for Refined Coal.

The proposal extends for one year, through 2012, the placed-in-service deadline for qualifying refined coal facilities.

 Section 108.  Extension of Production Credit.

 A.    Non-wind section 45 credits- Energy produced from certain renewable sources other than wind (such as biomass, geothermal or hydrogen) may qualify for Section 45 income tax credits through 2013. Wind production facilities, under current law, only qualify through 2012. This provision would extend for on additional year, through 2014, Section 45 tax credit for renewable energy production other than wind.

 B.     An income tax credit is allowed for the production of electricity from wind at qualified facilities.  To be a qualified facility, a wind energy facility must be placed in service before January 1, 2013.  The proposal would extend the placed-in-service date to January 1, 2014. 

 Coal produced on land owned by an Indian tribe qualifies for a production tax credit equivalent to $2 per ton through 2012.

 Section 109.  Extension of Credit for Energy-Efficient New Homes.

The proposal extends for one year, through 2012, the credit for the construction of energy-efficient new homes that achieve a 30% or 50% reduction in heating and cooling energy consumption relative to a comparable dwelling constructed per the standards of the 2003 International Energy Conservation Code (including supplements). 

 Section 110.  Extension of Credit for Energy Efficient Appliances.

The proposal extends through 2012 and modifies standards for the Section 45M credit for US-based manufacture of energy-efficient clothes washers, dishwashers and refrigerators. 

 Section 111.  Extension of Election of Investment Tax Credit in Lieu of Production Credit.

 A.    Election of ITC in lieu of section 45 PTC for non-wind. Similar to the election of investment tax credits (Section 48) or production tax credits (Section 45) provided for qualifying wind facilities, this provision would extend for one additional year, through 2014, the election of either ITC or PTC for certain non-wind renewable resources.

 

  1. Current law allows taxpayers to have wind facilities that otherwise qualify for the production tax credit under Section 45 treated as property eligible for the 30-percent investment tax credit under Section 48.  A taxpayer electing to take the ITC may not also claim the PTC.

 ITC for offshore wind extended for two additional years (through 2014). Taxpayers can elect either the Section 45 production tax credit or the Section 48 investment tax credit for the production of wind from qualified facilities. This provision would allow taxpayers to claim the Section 48 tax credit for two additional years for offshore wind facilities through 2014.

  Section 112.  Expansion of Qualifying Advanced Energy Production Credit.

The American Recovery and Reinvestment Act established a 30 percent credit for investments in new, expanded, or re-equipped clean energy manufacturing projects.  Eligible projects include those that manufacture products for wind and solar power production, energy efficiency, and other clean energy technologies.  The Recovery Act capped the amount of credit for this program at $2.3 billion. 

 Section 113.  Extension of Special Allowance for Cellulosic Biofuel Plant Property.

The proposal extends for one year taxpayers’ ability to immediately deduct one-half of the cost of investments in cellulosic biofuel property.

 Section 114.  Extension of Suspension of Limitation on Percentage Depletion for Oil and Gas from Marginal Wells.

The proposal extends through 2012 the suspension on the taxable income limit for purposes of depleting a marginal oil or gas well. 

 Section 115.  Extension of Alternative Fuels Excise Tax Credits.

The proposal extends through 2012 the $0.50 per gallon alternative fuel tax credit. 

 Section 116.  Extension of Grants for Specified Energy Property in Lieu of Tax Credits.

The proposal extends for one year the start-of-construction deadline for the cash grant in lieu of tax credit program, established in Section 1603 of the American Recovery and Reinvestment Act. 

 Section 117.  Extension of Mine Rescue Team Training Credit.

This provision provides a tax credit of up to $10,000 for the training of mine rescue team members. 

 

Section 118.  Extension of Election to Expense Mine Safety Equipment.

This provision allows a 50 percent immediate expensing for the following advanced underground mine safety equipment: (1) communications technology enabling miners to remain in constant contact with individuals above ground; (2) electronic tracking devices that enable individuals above ground to locate miners in the mine at all times; (3) self-rescue emergency breathing apparatuses carried by the miners and additional oxygen supplies stored in the mine; and (4) mine atmospheric monitoring equipment to measure levels of carbon monoxide, methane, and oxygen in the mine.

 TITLE II—REPEAL OF OIL AND GAS SUBSIDIES

 Subtitle A—Close Big Oil Tax Loopholes

 

Section 201.  Modification of Foreign Tax Credit Rules Applicable to Major Integrated Oil Companies which are Dual Capacity Taxpayers.

U.S. taxpayers are taxed on their income worldwide, but are entitled to a dollar-for-dollar tax credit for any income taxes paid to a foreign government.  U.S. oil and gas companies have been accused of disguising royalty payments to foreign governments as foreign taxes.  This allows them to lower their taxes in the U.S.  The bill would close this loophole that amounts to a U.S. subsidy for foreign oil production for the Big 5.

 

Section 202.  Limitation on Section 199 Deduction Attributable to Oil, Natural Gas, or Primary Products Thereof.

In 2004 Congress enacted Section 199, the domestic manufacturing tax deduction.  In 2008 Congress froze the Section 199 deduction at 6% for all oil and gas activity.  The bill eliminates the Section 199 deduction for the Big 5.

 

Section 203.  Limitation on Deduction for Intangible Drilling and Development Costs. 

 Would deny the Big 5 oil companies the option of expensing Intangible Drilling Costs (IDCs) and require such costs be capitalized. IDCs are expenditures such as wages, fuel, repairs, hauling, and supplies necessary for the drilling of oil wells. Currently, integrated oil companies can expense 70% of the cost of IDCs.  The bill requires the Big 5 to capitalize all of its IDC costs.

 

Section 204.  Limitation on Percentage Depletion Allowances for Oil and Gas Wells.

Firms that extract oil and gas are permitted a deduction to recover their capital investment under one of two methods.  Cost depletion allows for the recovery of the actual capital investment—the costs of discovering, purchasing, and developing the well—over the period the well produces income.  Under this method, the taxpayer’s total deductions cannot exceed its original investment.  Percentage depletion allows the cost recovery to be computed using a percentage of the revenue from the sale of the oil or gas.  Under this method, total deductions could (and often do) exceed the taxpayer’s capital investment.  The bill repeals percentage depletion for the Big 5. 

 Section 205.  Limitation on Deduction for Tertiary Injectants.

Tertiary injectants are used in enhanced oil recovery to drive more oil from an existing well.  Currently, oil companies are allowed to deduct the cost of tertiary injectants rather than capitalizing their costs and recovering them over time. The bill requires the Big 5 to capitalize the cost of tertiary injectants it uses during the year and recover those costs over time. 

 Subtitle B—Outer Continental Shelf Oil and Natural Gas.

 

Section 211.  Repeal of Outer Continental Shelf Deep Water and Deep Gas Royalty Relief. 

Repeals Sections 344 and 345 of the Energy Policy Act of 2005.  Section 344 extended existing deep gas incentives and Section 345 provided additional mandatory royalty relief for certain deepwater oil and gas production.  These changes will help ensure that Americans receive fair value for Federally-owned fossil fuel resources.

 

 

TITLE III—BUDGETARY EFFECTS

 

Section 301.  Deficit Reduction.

The Joint Committee on Taxation (JCT) estimates that the cost of extending the energy tax incentives in title I at $11.7 billion over ten years.  Last year JCT estimated the revenue saved from repealing the oil and gas subsidies in Title II at at $24 billion over ten years. 

Section 302.  Budgetary Effects.

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